PJM, the regional grid operator whose 67 million electricity consumers include Lehigh Valley utility customers, held a recent annual meeting at which affordability was the word of the week, which could spell positive news for residents dealing with rising electricity costs.
The stakeholders who get to vote during PJM’s decision-making processes are mainly utility company representatives and electricity generators, such as power plant operators, which has left consumer advocates concerned they lack the standing to force the grid operator to pay attention to the increasing burden electricity consumers bear as rates spike.
However, those same consumer advocates say last week’s PJM annual meeting was different. The word “affordability” wasn’t just being spoken by the small group of advocates who get to vote as the grid operator adjusts the policies that govern electricity prices. This time, elected officials, who don’t have a seat at the table either, made a lot of noise — and grid operators seemed to be listening.
Politicians pressure grid operator
The PJM annual meeting, held from May 11-13, was in Baltimore, so Maryland politicians dominated the headlines. Gov. Wes Moore made the biggest splash as elected officials pushed the grid operator to keep consumers in mind when setting energy market policy. However, there was a strong presence from other mid-Atlantic elected officials, including Pennsylvania.
Pennsylvania is a linchpin of the PJM grid, which covers 13 states and the District of Columbia. The state, which has transitioned from its coal mining roots to become a natural gas powerhouse, is a net exporter of energy.
Gov. Josh Shapiro has been notably vocal and active in efforts to hold PJM accountable for spiking utility prices, said Claire Lang-Ree, an environmental advocate who works on climate and energy policy for the nonprofit Natural Resources Defense Council.
A limited number of advocates have a seat at the PJM decision-making table, either in voting or nonvoting roles, and Lang-Ree is one of the people who get to be in the room for the policy discussions.
One change that is urgently needed is for PJM to pay more attention to state-level legislation, passed or pending, that regulates data center development and seeks to protect consumers from electricity price increases, she said. Shapiro’s staff who specialize in energy policy were a visible, active presence at last week’s PJM annual meeting, Lang-Ree added.
Shapiro included new plans to set regulations for responsible data center development in his latest budget address, and staff say further details are coming soon. Meanwhile, data center developers, Pennsylvania Department of Environmental Protection officials and state lawmakers have all referenced those proposed regulations as they seek to assure residents that plans are in place to limit the impact of data center growth on customer utility bills and regional water resources, already under strain due to prolonged drought.
How data centers are driving up the cost of electricity — and what grid operators can do
In response to the events of the annual meeting, Shapiro’s office issued a statement that said the governor is looking forward to an announced “technical conference on PJM governance” that will be held July 23.
“Governor Shapiro will continue pushing for reforms that give states a seat at the table in shared regional decisions and ensure Pennsylvanians have a voice in the direction and decision making at the grid operator we have entrusted with the reliability and affordability of our region’s power supply,” spokesperson Rosie Lapowsky said in the statement.
Plans to stop price hikes
Shapiro’s most high-profile action to protect consumers was a recent lawsuit that appealed to federal regulators, arguing that PJM was not meeting its duty to properly manage the capacity auctions that affect the supply cost of electricity.
Capacity auctions are a tool PJM uses to make sure that enough electricity generators are signed up to produce power, with the goal of preventing blackouts or power cuts during peak demand periods like heat waves.
When prices spike in a capacity auction, consumers feel the effect in their utility bills, as the supply cost portion of those bills goes up as electricity generators are paid more to guarantee power keeps flowing.
A capacity auction in summer 2024 saw prices jump 10-fold, rising from $28.92 per megawatt-day to $269.92. That’s the price a generator would get for making one megawatt of power available for a day, enough to power 400 to 900 homes.
The temporary price cap that resulted from the federal regulators’ response to Shapiro’s lawsuit has so far prevented further spikes, but prices have continued to hit the ceiling. Last summer auction prices hit the cap, ending at $329.17/MW-day.
PJM has typically used capacity auctions to project out three years into the future. That lag time means consumers and politicians know that increased supply costs will continue to be a part of customer’s utility bills, which have already risen.
How to protect consumers
Elected officials are now looking for new ways to use these capacity auctions to both ensure the grid has enough power and to prevent residents from paying too much of the cost of increased demand driven in part by data center development.
New procedures are still being finalized, but energy market experts are now focusing on “reliability backstop procurement” — a new kind of auction that would allow utilities to buy power on behalf of data center customers.
One theory, as yet untested, revolves around two-party agreements. Those agreements could mean that a data center client, such as one of the tech giants that want new data centers to power their artificial intelligence experiments, would agree to sign a contract with a power generation company that operates locally. Such a contract could require the data center client to pay the cost of bringing new power sources onto the grid rather than passing that cost along to utility customers.
That could also mean that utilities get creative with what a “new power plant” means. “Demand response” technology and “virtual power plants” are two trendy strategies that could be expanded to help utilities use the existing grid to move electricity around during times of peak demand, often with the help of existing or newly proposed battery storage.
Another theory is that some combination of state lawmakers, state-level utility regulators and federal energy market regulators will work together to pass regulations that make data center developers or clients pay “large load tariffs” designed to ensure that utility customers are not the ones who pay for new generation.
That could mean constructing new power plants or completing renewable energy projects that have been largely stalled due to delays in the ability of grid operators and utility companies to get projects approved and connected to the grid.
Across the PJM area, state-level lawmakers, including those in Harrisburg, are debating proposals. Some mid-Atlantic states are ahead of Pennsylvania in converting proposals to signed legislation, but multiple bills are under discussion in the current legislative session.
What state lawmakers say
Allies of the National Resources Defense Council, which advocates for an expanded rollout of renewable energy technology they say is the quickest, cheapest way to both safeguard the environment and keep utility costs affordable for consumers, have organized a group of lawmakers to help push PJM to change its policies while also working in their own statehouses to create legislation to regulate the energy market.
A May 11 news conference held outside along the Baltimore waterfront emphasized to PJM that politicians are still not allowed to cast votes in the rooms where it happens at the PJM annual meeting. Among the participants were lawmakers from Pennsylvania, alongside colleagues from Maryland and New Jersey.
The nonprofit Chesapeake Climate Action Network was the news conference’s official host. Pennsylvania speakers included Pennsylvania Rep. Danielle Friel Otten, who described herself as a working mom from Chester County.
Even the residents of affluent suburbs that lie inside her Chester County district are struggling with rising electricity prices, Friel Otten said, adding that the 2.1 million people in her district who are either below the poverty line or are classified as “ALICE” (the acronym comes from the phrase Asset Limited, Income Constrained, Employed and is used to identify a portion of the population that is employed and above the poverty line but still struggling to meet a high cost of living) are making decisions about whether to keep the lights on or buy groceries and necessary medication.
Higher bills mean more affluent constituents are making choices about whether or not they can afford extras such as sports fees or other associated costs that come with enrichment activities that keep youth busy and engaged, Friel Otten said.
School boards and municipal governments are making tough choices about cutting services versus raising taxes, she added, emphasizing that local businesses are also struggling with higher utility costs.
Public entities are making “decisions that they can’t have back” as they seek to keep the overall tax burden manageable while continuing to fund public schools and local government services, Friel Otten said, while utility companies are generating record profits.
To aid Pennsylvania consumers, PJM must agree to set rules that mean renewable energy projects can quickly connect to the grid, so that affordable, clean energy sources can get online fast enough to make a difference, Friel Otten said.
PJM needs to do its job, Friel Otten said. “My constituents cannot wait for a slow process to catch up to a crisis that is already here.”